This is a guest post from Dr. iur. Cornelia Furculita, Postdoctoral Research Fellow at the Chair of Public Law, European Law and Public International Law, German University of Administrative Sciences Speyer
Under its Trade Policy Review of 2021, the EU engaged to strengthen its toolbox to protect itself from unfair trading practices, including through the preparation of an anti-coercion instrument (ACI). In December 2021 the Commission published the proposal for the ACI.[1]
The ACI proposal is set to deal with measures of economic coercion, namely measures which comply with two conditions: when 1) a third country applies or threatens to apply measures affecting trade or investment; and 2) it does so with the aim ‘to prevent or obtain the cessation, modification or adoption of a particular act by the Union or a Member State’, ‘interfering in the sovereign choices of the Union or a Member State’. Additionally, the proposal provides in Art. 2 (2) several aspects that should be taken into consideration when determining whether the conditions for economic coercion are met, such as the intensity, severity, frequency, duration, breadth, magnitude of the measure, the presence of a pattern of interference, and whether the third country tried to settle the matter through coordination or adjudication. According to the proposed ACI, in case the Commission determines that there is a measure of economic coercion, the third country should be notified, requested to cease it and where appropriate, to repair the injury caused (Art. 4, para. 3). The Commission should then engage with the third country pursuing the end of the coercion, via such means as negotiations, mediation, conciliation, good offices, international adjudication (Art. 5, para. 1). While, the Regulation clearly favours encouraging the cessation of the coercion through other means, as a last resort, the Commission would impose countermeasures (Art. 7). Annex I to the proposal contains a list of potential future countermeasures, among them being the ‘suspension of tariff concessions […] and the imposition of new or increased customs duties, including […] beyond the most favoured-nation level’, and the ‘introduction or increase of restrictions on the importation or exportation of goods’. Accordingly, Annex I lists countermeasures that could violate substantive WTO rules. Although Art. 1 (2) of the ACI proposal requires that actions taken under it be consistent with international obligations, the Commission considers them justified under customary rules on countermeasures.
While a recent IELP blog post[2] generally analysed whether the ACI proposal violates WTO provisions ‘as such’ by applying the mandatory/discretionary distinction to it, the present post takes a distinct approach and deals specifically with the question of ACI’s conformity with Art. 23 of the DSU. The proposal’s origins lie in the process of amending the Trade Enforcement Regulation, during which the Committee on International Trade proposed that the Regulation include the possibility to respond with immediate countermeasures in case of a ‘clear breach of international law or a clear violation of trade obligations’, which clearly violated Art. 23 of the DSU.[3] Thus, it is interesting to see whether the ACI proposal has better chances to pass the legality test of Art. 23.
The Commission argues the legality of the proposal in light of the international customary rules on countermeasures. Art. 2 (1) read in light of the preamble of the proposal indicates that the Regulation assumes that in case of coercive measures which meet the established conditions, the principle of non-interference would be breached by the coercive third country in any case, irrespective of whether those measures would in and of themselves violate other international rules. Thus, the EU’s countermeasures will allegedly address violations of the non-interference principle of international law under Art. 49 of the ILC Draft Articles on State Responsibility. However, since DSU rules are lex specialis to general rules on countermeasures, if the first are applicable, the more general rules will be displaced. Art. 23.1 of the DSU mandates the use of the WTO dispute settlement to the exclusion of the customary rules on unilateral self-help codified in the ILC Draft Articles. Nevertheless, it does so only when WTO Members ‘seek the redress of a violation […] under the covered agreements’. The panel in US – Certain EC Products expressly stated that ‘the criterion for determining whether Article 23 is applicable is whether the Member that imposed the measure was "seeking the redress of" a WTO violation’ (para. 6.21). This approach was also confirmed in the EC – Commercial Vessels case where the panel said that ‘the phrase "seek the redress of a violation …" covers any act of a Member in response to what it considers to be a violation of a WTO obligation by another Member’ (emphasis added) (para. 7.196). The ACI proposal, however, does not necessarily deal with cases related to alleged WTO violations. In fact, the proposal’s declared purpose is to deal with measures of economic coercion, which, as mentioned, presumably violate customary international law rules, namely the principle of non-interference, regardless of whether these measures simultaneously violate WTO, FTA, or BIT rules. Accordingly, in case of countermeasures imposed under the ACI, the EU’s legal claim would not be based on WTO rules. Hence, the lex specialis, in the form of Art. 23 of the DSU, requiring the use of the WTO dispute settlement for disputes on WTO law, might not be considered applicable to the ACI dealing with breaches of customary international law. Similarly, there seems to be an agreement that when FTAs contain their own rules on dispute settlement rules, Art. 23.1 of the DSU is not considered violated even when the legal basis for the dispute at issue is an FTA norm replicating a WTO norm, due to the fact that the basis is still different.[4] Since Art. 23 of the DSU does not seem applicable to the ACI, the customary rules on countermeasures would not be displaced. The question whether the conditions under customary rules are met, such as whether the principle of non-interference is breached in case of economic coercion, lies outside the scope of this post.
Even though the ACI does not seem to be currently covered by Art. 23 of the DSU, the panel could find other evidence that would overturn this conclusion. Besides the statutory language, the panel could also take into consideration other aspects in the analysis under Art. 23 of the DSU, as it did in US – Section 301 case (paras. 7.110-7.130), i.e. administrative act accompanying the legislation, US statements before the panel, and US practice. While presently there is little evidence to reverse the conclusion reached above, in time if, for example, there is extensive practice showing that the EU is regularly using the instrument to adopt countermeasures before it challenges the same measures within WTO dispute settlement, or if other pertinent evidence emerges, the conclusion could be different.
Furthermore, the assessment could be different when considering ACI’s application in individual instances. Thus, Art. 23 of the DSU could be applicable to EU’s response measures adopted under the ACI Proposal, if a WTO panel determines that the evidence shows the measure at issue to actually seek the redress of a WTO violation. For example, in US – Certain EC Products (paras. 6.25-6.34), the panel established that there was ‘ample evidence’, consisting of the USTR Press Release announcing the measure, the request from USTR to the US Customs Service, memoranda of US Customs Service officials, and a press conference by the Deputy USTR, demonstrating that the measure at issue was seeking redress for a perceived WTO violation within the meaning of Article 23.1 of the DSU. Hence, although measures taken under the ACI should theoretically address violations of customary law, the WTO panel could analyse whether that particular measure is not in fact seeking the redress of a WTO violation. In case a coercive measure is simultaneously challenged by the EU within WTO proceedings, as it recently happened in the EU’s conflict with China in relation to restrictions taken against Lithuania, it might be more difficult for the EU to argue that its countermeasure is not taken against a WTO violation. In case there will be sufficient evidence, the panel could conclude that EU’s measure seeks redress against a WTO breach, rendering applicable the special WTO rules. Hence, the conformity of a specific countermeasure adopted under the ACI with Art. 23 of the DSU will depend on the specific facts of the case, especially the available evidence, such as the text of the measure or official statements. If Art. 23 of the DSU is applicable to a specific anti-coercion measure taken before obtaining the authorisation of the DSB in accordance with Art. 22 procedures, Art. 23 would be clearly violated. Therefore, specific unilateral response measures taken under the ACI, might be found illegal under Art. 23 of the DSU.
Although, Art. 1 (2) of the ACI proposal requires that actions taken under it be consistent with international obligations, in the Impact Assessment Report, the Commission itself stated that there can be cases in which the coercive measures are simultaneously in breach of WTO obligations, and that in these cases the EU would continue to also initiate WTO proceedings.[5] Therefore, the EU intends to make use of countermeasures under the ACI even though the situations the measures address amount to breaches of WTO law.
[1] https://trade.ec.europa.eu/doclib/docs/2021/december/tradoc_159958.pdf
[2] https://ielp.worldtradelaw.net/2021/12/applying-the-mandatorydiscretionary-distinction-to-the-eus-anti-coercion-instrument.html
[3] For a detailed analysis see Wolfgang Weiß, Cornelia Furculita, ‘The EU in Search for Stronger Enforcement Rules: Assessing the Proposed Amendments to Trade Enforcement Regulation 654/2014’ 23 (2020) Journal of International Economic Law 1-20, https://academic.oup.com/jiel/article-abstract/23/4/865/5996541.
[4] Pamela Apaza Lanyi, Armin Steinbach, ‘Limiting jurisdictional fragmentation in international trade disputes’, (2014) 5 Journal of International Dispute Settlement, pp. 372–405, p. 397; James Flett, ‘Referring PTA disputes to the WTO dispute settlement system’, in A. Dür and M. Elsig (eds) Trade Cooperation: The Purpose, Design and Effects of Preferential Trade Agreements. World Trade Forum (New York: Cambridge University Press, 2015), pp. 557–558.
[5] https://trade.ec.europa.eu/doclib/docs/2021/december/tradoc_159963.pdf
